The Obama administration‘s key housing market rescue programs landed on the chopping block on Thursday as a committee in the U.S. House of Representatives scheduled a vote next week to terminate them.
The Republican leadership of the House Financial Services Committee said the panel will vote on a bill on March 3 that would kill the Home Affordable Modification Program, which it said has failed to help a sufficient number of distressed homeowners to justify its cost.
The committee also will vote on bills to shut down a Federal Housing Administration refinancing program and a fund to stabilize neighborhoods suffering from heavy foreclosures, they said. A fourth bill would kill a program to provide 12-month emergency loans to homeowners to stave off foreclosures.
“In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,” committee Chairman Spencer Bachus said in a statement.
“These programs may have been well intentioned but they’re not working and, in reality, are making things worse,” the Alabama Republican said.
The Obama administration pushed back against the efforts, saying they would close the door on struggling homeowners facing the worst housing crisis in generations.
“The administration remains committed to reaching eligible homeowners to give them every opportunity to avoid foreclosure and will continue working to make our programs as effective as possible,” an Obama administration spokesperson said.
The bills face an uphill battle. If they clear the committee, they would have to be approved by the full House as well as by the Senate, which is controlled by Democrats.
Through a spokesman, Senate Banking Committee Chairman Tim Johnson signaled his opposition. “Simply ending foreclosure assistance, which has had modest success, won’t make the problem go away,” said Sean Oblack, a spokesman for Johnson, a South Dakota Democrat.
HAMP, the Obama administration’s premier program to aid borrowers struggling with costly mortgages, has provided permanent loan modifications for only 521,630 homeowners in the nearly two years it has been operating.
Conservatives and liberals alike have criticized the program for being ineffective. Elizabeth Warren, the Harvard law professor who is leading the administration’s efforts to set up an agency to regulate consumer financial products, last year likened the program to “bailing out the boat with a teaspoon while it takes on gallons of water.”
Rising foreclosures are weighing on a housing market already struggling under a glut of supply. Influential Yale economist Robert Shiller, who co-founded the closely watched Case-Shiller Home Price Index, said earlier this week there was a “substantial” risk home prices could fall another 15 to 25 percent.
HAMP provides cash incentives to mortgage servicing firms to lower monthly payments for borrowers to no more than 31 percent of their income. But only owner-occupants who can meet stringent documentation requirements for employment, income and acceptable overall debt levels can qualify, which has limited the program’s reach.
Thus far, the program has spent only $840 million of the $29 billion Treasury has earmarked for the program from its $700 billion financial bailout fund.
Much of the Obama administration’s estimated $28.1 billion net cost for TARP is tied to housing relief programs, which — unlike bank bailouts — do not offer any opportunity to recover funds spent.
Treasury Secretary Geithner last week acknowledged that HAMP will not likely reach its initial goals of aiding 3 million to 4 million U.S. homeowners by the end of 2012.
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